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TREASURIES-Yields move slightly higher as stocks pare some losses

Fri, 2nd Oct 2020 16:00

(New throughout)

By Kate Duguid

NEW YORK, Oct 2 (Reuters) - U.S. Treasury yields rose
modestly on Friday, following stocks, which pared some early
losses on the news that President Donald Trump has contracted
COVID-19 and that U.S. jobs growth slowed in September.

Risk assets recovered in mid-morning trade from session
lows, tamping down prices on safe-haven assets like Treasury
bonds after the White House tried to reassure Americans on
Friday that Trump was still working from isolation. The White
House's bombshell announcement earlier in the day that the
president had caught the coronavirus threw the administration
and presidential election campaign into uncertainty.

But investor appetite for risk remained muted, with all
three major U.S. stock indexes still red on the day, also
influenced by the Labor Department's report that U.S. job growth
slowed more than expected in September and the ranks of the
permanently unemployed swelled. That underscored an urgent need
for additional fiscal stimulus as the COVID-19 pandemic drags on
and threatens the economy's recovery.

The benchmark 10-year yield was last up 1.5
basis points to 0.692%, steepening the yield curve modestly as
the two-year yield remained anchored. The movement in the
10-year yield remained in line with recent trends. With the
exception of Sept. 29, the 10-year yield has opened and closed
with a 5-basis-point range of 0.65% and 0.7% for the past three
weeks.

"I'm actually quite surprised by how muted the reaction has
been in the Treasury market. Not just following the COVID news
earlier this morning from the president as well as the modestly
weaker jobs number. It is really hard to get the Treasury market
to react to anything," said Subadra Rajappa, head of U.S. rates
strategy at Societe Generale.

The report on slowing jobs growth may ultimately push yields
lower.

"What we've seen on the data front in the last few weeks is,
after the V-shaped recovery in June, the data has mostly
plateaued," said Rajappa. "So if we do see evidence of a
meaningful slowdown, there is a good chance we could see yields
decline from here."

But, she noted, heavy supply and the Federal Reserve's
unwillingness to move interest rates into negative territory
will likely keep yields above the lows hit in August.

The two-year yield was last 0.2 basis point
higher at 0.133%, while the 30-year yield was last
up 2.1 basis points to 1.476%.

(Reporting by Kate Duguid; Editing by Dan Grebler)

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